Assignment

Assignment takes place when the written option is exercised by the options holder. The
options writer is said to be assigned the obligation to deliver the terms of
the options contract.

If a call option is assigned, the options writer will have to sell the obligated
quantity of the underlying security at the
strike price.

If a put option is assigned, the options writer will have to buy the obligated quantity
of the underlying securty at the strike price.

Once an option is sold, there exist a possibility for the option writer to be assigned
to fulfil his or her obligation to buy or sell shares of the underlying stock on
any business day. One can never tell when an assignment will take place. To ensure
a fair distribution of assignments, the Options Clearing Corporation uses a random
procedure to assign exercise notices to the accounts maintained with OCC by each
Clearing Member. In turn, the assigned firm must use an exchange approved way to
allocate those notices to individual accounts which have the short positions on
those options.

Options are usually exercised when they get closer to
expiration. The reason is that it does not make much sense to exercise an
option when there is still time value
left. Its more profitable to sell the option instead.

Over the years, only about 17% of options have been exercised. However, it does
not mean that only 17% of your short options will be exercised. Many of those options
that were not exercised were probably out-of-the-money
to begin with and had expired worthless. In any case, at any point in time, the
deeper into-the-money the short options, the more likely they will be exercised.

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